What happened

Units of Buckeye Partners (NYSE:BPL) surged 21.7% in May, according to data provided by S&P Global Market Intelligence. Driving the master limited partnership's (MLP) rally was its agreement to be acquired by a private equity fund. That deal more than overshadowed its disappointing first-quarter results.

So what

IFM Global Infrastructure Fund agreed to acquire Buckeye Partners for $41.50 per unit in cash last month. The deal values the MLP at $10.3 billion and represents a 27.5% premium to its trading price before the acquisition announcement. 

Two people shaking hands with an energy facility in the background

Image source: Getty Images.

The transaction came well after Buckeye Partners completed its strategic review last November. The company took several actions as a result of that process to shore up its financial profile, including selling several assets and reducing its distribution to investors. Those moves helped improve the company's balance sheet, which made it a much more attractive acquisition candidate for a private equity fund.

However, while the company's asset sales and distribution reduction have improved its financial profile, they're acting as a near-term drag on earnings. That was evident during the first quarter, where Buckeye Partners reported that its cash flow declined by 15% compared to the year-ago period. While the company expects earnings to start growing again when its current slate of expansion projects enter service in the next year, those asset sales will remain a headwind in the near term.

Now what

Units of Buckeye Partners initially soared past the agreed buyout price on speculation that a higher offer might emerge. While the company's assets make it an attractive acquisition target for another MLP, a bidding war seems unlikely given the all-cash offer and purchase price premium. Because of that, investors should move past Buckeye and consider other options.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.